There are many things to keep in mind when it comes to finding a loan for your car. What is the best kind of lender and where can you get the best financing rates? Will your credit score affect your ability to get a loan? Is a long term or short term payment plan best? Here are a few things to keep in mind when trying to finance a car.
Check Your Credit Score and Read the Fine Print
Because a car is far easier to repossess than a house, it is possible to get a loan for car even if your credit score is bad. However, even if your credit is low and you’re happy just to be approved for a loan, it’s important to shop around and see whether you can find a better price. Car dealerships tend to make a great deal of money off of eager buyers with low credit scores. They will frequently advertise great interest rates, only to reveal later on that the fine print states that these rates are reserved for people with an exceptional credit score. Don’t ever forget to read the fine print.
Another reason to check your credit score is because it will help you to decide where you should get your loan. If your credit isn’t the greatest, you may be better off getting a financing quote elsewhere, such as from an online lender. On the other hand, if you have an above average credit, there’s a strong chance you might get the best deal by heading straight to the dealership. Although car dealerships tend to take advantage of people with low credit scores, people with excellent credit can usually have exceptionally good financing rates.
Short Term or Long Term?
Don’t let the dealership lure you into a long term loan with promises of low prices. Most car salespersons will try to sell you on a car by advertising its monthly payment rather than its full payment, and as you negotiate they will continue to lower that payment. However, it’s important to keep in mind that as when salespeople lower the monthly payment, they are not lowering the overall price of the car, but rather stretching out the payment term. You may feel like you’re paying less because your monthly payments are less, but you’re simply paying the same amount over a longer stretch of time. The costs can quickly add up in the form of interest, not only because you are paying interest for a longer period of time, but also because interest rates tend to be higher the longer the loan term. A long, drawn-out loan can also reflect badly on your credit. In short, if you can afford a shorter term loan, it’s best to go that route.
Pay For a Few Things Upfront
Consider the extra fees, such as registration, warranties, and sales tax. It may be tempting to have these covered by your loan, but that can make things confusing and difficult for you. It’s much easier to have a clear-cut monthly payment for one car, rather than throwing a number of other expenses into the mix. Most experts recommend paying cash for any extra costs before you take your new car home.
Also consider putting money down upfront. Many car dealerships will not require a buyer with good credit to put any money down, but taking a car without paying a cent can often put you in a difficult position. For instance, what if the car’s value deteriorates while you still owe money on it? If you have to sell your car, but it’s worth less than you owe, you’ll find yourself in a difficult spot. It’s recommended that you put 20% of the full price down on the spot before you drive away. That way you’ll own at least a portion of your car right off and won’t run the risk of it losing value before you pay it off.
Although most people agree that it is best to pay for your car in cash, that isn’t always an option. When it comes to financing a car, you have a few options open to you depending on your credit and the lender you choose to work with. In the end, it is common sense that will best help to simplify the process and help you pay off your car in a timely manner.